CFPB Skirts Stakeholder Input Again with Interpretive Rule on States’ Authority in Credit Reporting Markets

interpretive rule The “so-called” interpretive rule focuses on preemption of the FCRA by state laws on credit reporting and encourages states to consider such laws, without mentioning the need for input—in the case of medical debt—from collection agencies, payors and health care providers.

07/05/2022 1:45 P.M.

5 minute read

The Consumer Financial Protection Bureau has released an interpretive rule.” arguing, “that FCRA’s express preemption provisions have a narrow and targeted scope. States therefore retain substantial flexibility to pass laws involving consumer reporting to reflect emerging problems affecting their local economies and citizens,” according to a news release from the CFPB.

The interpretive rule follows a slate of activity from the CFPB seeking to effectuate change outside the rulemaking process laid out by Congress.

The CFPB alleges state law that prohibits data furnishers from furnishing to credit reporting agencies “would also not generally be preempted. Similarly, if a [s]tate law required that a consumer reporting agency provide information required by the FCRA at the consumer’s requests in languages other than English, such a law would generally not be preempted.”

ACA is reviewing the bureau’s language on state preemption, its choice to use an interpretive rule, and case law that conflicts with the CFPB’s actions.

“The CFPB’s actions align with a flurry of recent activity from the CFPB seeking to create new precedent without engaging in the rulemaking process, and without considering statutory directives from Congress,” said Leah Dempsey, shareholder at Brownstein Hyatt Farber Schreck and ACA’s lobbyist.

Medical Debt Credit Reporting

The CFPB, along with the national credit reporting agencies (NCRAs), have focused on medical debt credit reporting this year, which also appears to be a driver behind the interpretive rule.

According to the CFPB’s interpretive rule, Section 1681c of the FCRA “does not provide any general restrictions on the content of a consumer report. Accordingly, [s]tate laws relating to what or when items generally may be initially included on a consumer report—or what or when certain types of information may initially be included on a consumer report—would generally not be preempted by [S]ection 1681t(b)(1)(E).”

The CFPB continues that “states therefore retain substantial flexibility to pass laws involving consumer reporting to reflect emerging problems affecting their local economies and citizens. For instance, medical debt that shows up in a consumer report can be factored into a consumer’s credit score, though whether and how these debts affect their scores varies depending on the score model.”

As it did in a report about medical debt and the No Surprises Act earlier this year, the CFPB also uses outdated research from 2014 in the interpretive rule to state that “medical collections are less predictive of future consumer credit performance than nonmedical collections.”

Whether finding solutions to problems or regulatory measures, the bureau’s actions need to be based on current data and results from working with all constituents.

“Credit reporting processes are too integral to each industry, including health care, and the best answers for any improvements will come when all the affected stakeholder groups are at the table making decisions together and able to work through the complexities of the existing system,” said ACA CEO Scott Purcell. “For example, supporting lengthening medical debt credit reporting without knowing how health care and payor contracts work only helps insurance companies and hurts low-income Americans and decreases their access to health care by not following industry recommended best practices in this area.”

State vs. FCRA

“By urging states to pass laws related to credit reporting medical debt that in their narrow view could preempt the FCRA, the CFPB sidesteps consulting with providers, payors or collection agencies—all stakeholders that have valuable insights to contribute to ensure profound negative consequences aren’t created in their ‘solutions,’” Purcell said.

A first wave of medical debt credit reporting changes from the CRAs is already underway as of July 1, ACA previously reported.

Yet, the CFPB’s advisory opinion states, “If a [s]tate law were to forbid a consumer reporting agency from including medical debt in a consumer report for a certain period of time after the debt was incurred, such a law would generally not be preempted. Section 1681c does not regulate the subject matter of when medical debt (or debt generally) may be first included in a consumer report.”

“However, this exclusionary behavior to again not include stakeholders in developing a rule—even an ‘interpretive rule’—is counter-productive to solving any real issues that do exist and the wake of negative unintended consequences from ignoring the people closest to the details is astounding,” Purcell said.

Overall, the CFPB reports its interpretive rule “makes clear” that:

  • States retain broad authority to protect people from harm due to credit reporting issues. For example, a state could forbid a credit reporting company from including information about a person’s medical debt for a certain period of time after the debt was incurred.
  • State laws are not preempted unless they conflict with the FCRA or fall within narrow preemption categories enumerated within the statute. Preemption under the Fair Credit Reporting Act is narrow and targeted. Nothing in the statute generally preempts state laws relating to the content or information contained in credit reports. It does not preempt, for instance, state laws governing whether eviction information or rental arrears appears in the content of credit reports.

The rule will take effect when it is published in the Federal Register, which could take a few weeks to a month.

In the meantime, ACA continues to review the interpretive rule and other recent measures from the CFPB, such as the advisory opinion on payment transaction fees.

“ACA members have strong compliance management system processes that apply to credit reporting to ensure—in partnership with data furnishers and, in the case of medical bills, health care providers—that only legitimate debt is reported, especially in line with the new requirements from the NCRAs,” Purcell said.

Read the CFPB’s interpretive rule here.

If you have executive leadership updates or other member news to share with ACA, contact our communications department at [email protected]. View our publications page for more information and our news submission guidelines here.

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